True Religion Apparel Inc., a Wall Street darling in 2011, disappointed investors late Thursday.

This story first appeared in the February 10, 2012 issue of WWD. Subscribe Today.

The Los Angeles-based firm’s shares fell more than 20 percent in after-hours trading following the company’s release of fourth-quarter earnings that unexpectedly declined and sales that, while higher, fell short of estimates. The firm initiated 2012 earnings guidance that also fell below Wall Street’s view, although revenue projections exceeded it.

True Religion’s earnings calculus was thrown off by selling, general and administration costs that rose 19 percent, far more than its sales. Executives for the firm told analysts that it expected to see payoffs for investments that drove SG&A higher, such as the expansion of its global retail network and the establishment of a distribution agreement with China’s Envols International Trading Co. Ltd.

Asked about the SG&A spike, Peter Collins, chief financial officer, told analysts on an evening conference call, “The…SG&A dollars that we incurred in 2011 are pretty similar to what we think we’re going to incur in 2012. It is just that in 2012, we’re going to get some sales lift now, especially in Europe.”

For the three months ended Dec. 31, net income dropped 8.4 percent to $14.5 million, or 57 cents a diluted share, from $15.8 million, or 63 cents. Sales rose 7.7 percent to $119.4 million from $110.9 million in the final quarter of last year and gross margin improved to 64.1 percent of sales from 62.9 percent a year ago. Direct-to-consumer revenues in the U.S. rose 23.7 percent, to $77.3 million, on an 11 percent increase in same-store sales and e-commerce revenues, with that increase offset by a 20.4 percent decline in U.S. wholesale volume, to $22.4 million. European revenues in the fourth quarter rose 0.4 percent, to $19 million.

Excluding special items, such as store impairment charges, in both quarters, earnings per share were 62 cents a diluted share, below both the year-ago figure of 64 cents and analysts’ consensus estimates of 71 cents. Revenues also fell short of estimates, which were pegged at $128 million.

Shares ended the day at $36.74, up 26 cents, or 0.7 percent, but fell $8.07, or 22 percent, in the first two hours after the close of the market and the disclosure of the results. The closing price for the day was 69.2 percent above the year-ago closing price of $21.71.

Lynne Koplin, president, said the company’s women’s business is “actually trending, I would say, probably even to last year. At this point, men’s is still carrying a bit higher [average unit retail].”

The firm initiated 2012 EPS guidance of $1.88 to $1.95 on sales of $450 million to $460 million and said it wouldn’t be updating guidance as the year proceeded. Analysts, on average, had expected EPS of $1.98 on sales of $428.4 million.

For the full year, net income rose 3.4 percent to $45 million, or $1.80 a diluted share, from $43.5 million, or $1.75, as sales picked up 15.4 percent to $419.8 million from $363.7 million.

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